Photographer: Dado Gadlieri/Bloomberg

Brazil Sells $1 Billion Overseas Bond After Borrowing Costs Sink

  • Notes expected to price Tuesday, Treasury says in statement
  • Deal is led by Citibank, Bank of America Merrill Lynch, BNP

Brazil tapped overseas debt markets for the first time since July after its borrowing costs tumbled, joining a record wave of emerging-market bond sales this year.

The country sold $1 billion more of its global bonds due in 2026 to yield 5 percent, the Treasury said in a statement. The notes were first issued a year ago at 6 percent.

Brazilian assets have surged in the past year amid optimism President Michel Temer will be able to address fiscal problems and boost growth after the country’s credit rating was cut to junk. The risk of owning the sovereign debt, as measured by five-year credit default swaps, has fallen by almost half in the past 12 months while the currency jumped more than 20 percent. The economy is forecast to expand this year for the first time since 2014.

"This is a smart move” for Brazil, said Jorge Piedrahita, the chief executive officer of New York-based broker Torino Capital. "We like the fact that Brazil’s dollar debt levels are low, particularly compared with its reserves.”

Emerging-market governments and companies have already sold more than $100 billion worth of euro and dollar notes this year, an unprecedented pace as issuers anticipate the Federal Reserve will raise interest rates as soon as this month. Borrowing costs for developing countries have fallen by about half a percentage point since spiking in the aftermath of Donald Trump’s surprise election victory.

Citigroup Inc., Bank of America Merrill Lynch and BNP Paribas SA led Brazil’s deal.

Prices for the existing $1.5 billion of bonds, the nation’s most traded notes, fell 0.9 cent to 107.5 cents on the dollar as of 4:51 p.m. in New York, pushing up the yield to 4.96 percent.

“The economy is forecast to expand this year for the first time in several years and the cost of borrowing for Brazil fell accordingly,” said Giuliano Palumbo, a senior portfolio strategist at Euromobiliare who helps manage 20 billion euros ($21 billion) of assets, including Brazil sovereign and corporate bonds. “This looks like a good window of opportunity."

— With assistance by Allan Lopez

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